Crude oil prices remain on the defensive on Tuesday after a steep sell-off witnessed overnight. Brent has been flirting with the $22 handle during the European session, and a break below this level could shift market focus to the $20 psychological figure again.
Traders continue to express concerns over the outlook for global energy demand against the backdrop of the coronavirus outbreak. Despite some countries have been gradually easing restrictions and lockdowns, the current steps are not enough to revive demand for oil. The continuing stimulus measures from major central banks do little to ease the turmoil in the oil market as well.
For a robust recovery in prices, traders need to see a recovery in demand but the lingering recession threat makes market participants bet on further contraction in consumption in the coming months and even quarters. In other words, the fundamental picture in the oil market remains gloomy, and bearish risks continue to persist.
On May 1, the OPEC+ countries start cutting production in line with a new deal agreed earlier this month. However, these measures will hardly be enough to push the prices higher as long as the coronavirus pandemic continues.
So it may be too early to call a bottom at this stage as more losses may lie ahead. Brent could challenge the $20 handle once again and even dip to $17-18 in the days to come should the bearish pressure intensify. Of note, traders may continue to get rid of the nearest contracts ahead of the expiry date on Thursday. This factor may add to the negative sentiment in the short term and even trigger a panic sell-off.
From the technical point of view, one can hardly expect Brent to regain the $39 handle any time soon. However, should the market find a local bottom and proceed to recovery after a bounce from lows, an important upside target arrives around $26. A decisive break above this level will open the way to $28. On the downside, prices need to cling to the $22 figure so that to avoid more aggressive losses.